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No. 17-494 ================================================================

In The

Supreme Court of the United States

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SOUTH DAKOTA,

Petitioner, v.

WAYFAIR, INC., OVERSTOCK.COM, INC., AND NEWEGG, INC.,

Respondents.

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On Writ Of Certiorari To The Supreme Court Of South Dakota

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RESPONDENTS’ BRIEF

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GEORGE S. ISAACSON Counsel of Record MARTIN I. EISENSTEIN MATTHEW P. SCHAEFER BRANN & ISAACSON 184 Main Street P.O. Box 3070 Lewiston, ME 04243-3070 (207) 786-3566 [email protected] [email protected] March 28, 2018 [email protected]

Counsel for Respondents

================================================================ COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

QUESTION PRESENTED

Should the Court abrogate the physical presence standard of “substantial nexus” for state sales and use taxes, reaffirmed in Quill Corp. v. North Dakota, 504 U.S. 298 (1992)?

ii

CORPORATE DISCLOSURE STATEMENT

Pursuant to Rule 29.6, Respondents Wayfair Inc. and Overstock.com, Inc. each states that:

1. It has no parent corporation.

2. No publicly held corporation owns 10 percent or more of its stock.

Respondent Newegg Inc. states that:

1. It has the following parent corpora-tion, Digital Grid (Hong Kong) Technology Co., Ltd.

2. No publicly held corporation owns 10 percent or more of its stock.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED ..................................... i

CORPORATE DISCLOSURE STATEMENT ........ ii

TABLE OF AUTHORITIES ................................... vi

INTRODUCTION ................................................... 1

JURISDICTION ..................................................... 8

STATEMENT.......................................................... 8

I. Extent Of Ecommerce .................................. 9

II. History Of Remote Sales/Use Tax Treat-ment .............................................................. 10

A. 1967: Bellas Hess ................................... 11

B. 1992: Quill ............................................. 13

C. 1997-2000: ACEC And NTA Project...... 13

D. 2002 To The Present: SSUTA To The GAO........................................................ 17

III. South Dakota Sales Tax............................... 22

IV. Proceedings Below ....................................... 23

SUMMARY OF ARGUMENT ................................ 24

ARGUMENT ........................................................... 27

I. There Is No Special Justification For Over-ruling Quill .................................................. 27

A. Retailers Have Justifiably Continued To Rely On Quill .................................... 28

1. Retailers Were Entitled To Take This Court At Its Word ............................. 29

iv

TABLE OF CONTENTS – Continued

Page

2. Reliance In Light Of Continued Com-pliance Burdens Is Plainly Reasona-ble ...................................................... 30

a. Sales Tax Software Does Not Eliminate The Compliance Bur-dens ............................................. 30

b. Sales Tax Software Adds To The High Costs Of Compliance ......... 36

B. Quill Was Correctly Decided ................. 39

C. Quill Has Not Been Undermined By Later Decisions ...................................... 42

D. The Physical Presence Standard Is Not Unworkable ........................................... 44

E. Changed Circumstances Do Not War-rant Overturning Quill ......................... 46

1. Changes In Market Conditions Do Not Alter The Existence Of Uncon-stitutional Burdens On Interstate Commerce ......................................... 46

2. The Amount Of Uncollected Tax Is Far Lower Than Previously Esti-mated And Diminishing Rapidly ..... 47

F. No Other Standard Provides A More Workable Rule ....................................... 53

1. “Economic Presence” Thresholds Are Fundamentally Flawed .................... 54

2. Pike Balancing Cannot Work ........... 57

v

TABLE OF CONTENTS – Continued

Page

II. Congress Remains The Proper Body To Ad-dress Whether, And In What Manner, To Al-ter The Quill Rule ........................................ 59

III. Overruling Quill Presents The Risk Of Crippling Retroactive Liability For Retail-ers In Over 30 States ................................... 62

CONCLUSION ..................................................... 66

APPENDIX A: State Sales Tax Laws ..................... A-1

APPENDIX B: State Statutes of Limitation When No Tax Return Was Filed (for states with potential retroactivity) ................................. B-1

APPENDIX C: Letter Dated Nov. 17, 2017, from The Connecticut DRS to The Swiss Colony, LLC ........................................................................ C-1

APPENDIX D: Examples of TaxCloud Lookup Errors for South Dakota ....................................... D-1

vi

TABLE OF AUTHORITIES

Page

CASES

Allied-Signal, Inc. v. Dir., Div. of Taxation, 504 U.S. 768 (1992) ........................................................ 43

Am. Trucking Ass’ns, Inc. v. Smith, 496 U.S. 167 (1990) ....................................................................... 63

Capital One Bank v. Comm’r of Revenue, 899 N.E.2d 76 (Mass.), cert. denied, 557 U.S. 919 (2009) ....................................................................... 41

Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) ............ 64

Commonwealth Edison Co. v. Montana, 453 U.S. 609 (1981) .......................................................... 11, 43

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) .................................................... 42, 43, 61

Comptroller of the Treasury v. Wynne, 135 S.Ct. 1787 (2015) ........................................................ 42, 61

Dep’t of Revenue v. Davis, 553 U.S. 328 (2008) ........................................................... 26, 57, 58

Direct Mktg. Ass’n v. Brohl, 135 S.Ct. 1124 (2015) ....... 43

Felt & Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62 (1939) ....................................................................... 11

Gen. Trading Co. v. State Tax Comm’n, 322 U.S. 335 (1944) ................................................................ 11

Harper v. Va. Dep’t of Taxation, 509 U.S. 86 (1993) ....................................................... 7, 62, 63, 65

Hemi Group, LLC v. City of New York, 559 U.S. 1 (2010) ....................................................................... 42

vii

TABLE OF AUTHORITIES – Continued

Page

In re Appeal of Intercard, Inc., 14 P.3d 1111 (Kan. 2000) .............................................................. 44

In re Tax Appeal of Baker & Taylor, Inc. v. Kawa-fuchi, 82 P.3d 804 (Haw. 2004) ................................ 44

James B. Beam Distilling Co. v. Georgia, 501 U.S. 529 (1991) .......................................................... 62, 63

KFC Corp. v. Iowa Dep’t of Revenue, 792 N.W.2d 308 (Iowa 2010), cert. denied, 565 U.S. 817 (2011) ....................................................................... 41

Kimble v. Marvel Entm’t, LLC, 135 S.Ct. 2401 (2015) ........................................................... 27, 59, 60

Kuhn v. Fairmont Coal Co., 215 U.S. 349 (1910) ....... 62

MeadWestvaco Corp. v. Ill. Dep’t of Revenue, 553 U.S. 16 (2008) .......................................................... 42

Michigan v. Bay Mills Indian Cmty., 134 S.Ct. 2024 (2014) ...................................................... passim

Nat’l Bellas Hess, Inc. v. Dep’t of Revenue, 386 U.S. 753 (1967) ................................................ passim

Nat’l Geographic Soc’y v. Cal. Bd. of Equaliza-tion, 430 U.S. 551 (1977) ................................... 11, 43

Nelson v. Sears, Roebuck & Co., 312 U.S. 359 (1941) ....................................................................... 10

Newegg Inc. v. Ala. Dep’t of Revenue, Ala. Tax Tribunal No. S 16-613 ............................................. 36

Ohio v. Wyandotte Chems. Corp., 401 U.S. 493 (1971) ......................................................................... 8

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Page

Patterson v. McLean Credit Union, 491 U.S. 164 (1989) ....................................................................... 28

Payne v. Tennessee, 501 U.S. 808 (1991) ..................... 28

Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) ........................................................... 26, 57, 58

Quill Corp. v. North Dakota, 504 U.S. 298 (1992) .... passim

Reynoldsville Casket Co. v. Hyde, 514 U.S. 749 (1995) ....................................................................... 65

Scripto, Inc. v. Carson, 362 U.S. 207 (1960) .......... 10, 11

Standard Pressed Steel Co. v. Wash. Dep’t of Rev-enue, 419 U.S. 560 (1975) ........................................ 11

State by and through Heitcamp v. Quill Corp., 470 N.W.2d 203 (1991), aff ’d in part and rev’d in part, Quill Corp. v. North Dakota, 504 U.S. 298 (1992) .................................................................. 9

Tax Comm’r v. MBNA Am. Bank, N.A., 640 S.E.2d 226 (W.Va. 2006), cert. denied sub nom., FIA Card Servs., N.A. v. Tax Comm’r, 551 U.S. 1141 (2007) .............................................................. 41

Tyler Pipe Indus., Inc. v. Wash. Dep’t of Revenue, 483 U.S. 232 (1987) ................................................. 11

United States v. Carlton, 512 U.S. 26 (1994) .............. 65

Washington v. Gen. Motors Corp., 406 U.S. 109 (1972) ......................................................................... 8

Wis. Dep’t of Revenue v. William Wrigley, Jr. Co., 505 U.S. 214 (1992) ................................................. 44

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Page

FEDERAL STATUTES

47 U.S.C. § 151 (note) .................................................. 14

H.R. 2193, 115th Cong. (2017-2018) .......................... 60

H.R. 2887, 115th Cong. (2017-2018) .......................... 60

P.L. 105-277, Sec. 1101(a)(2) (1998) ........................... 14

P.L. 105-277, Sec. 1102(a), (g) (1998) ......................... 14

P.L. 105-277, Sec. 1104(8)(a)(ii) (1998) ....................... 14

P.L. 114-125, Sec. 922(a) (2016) .................................. 14

S. 976, 115th Cong. (2017-2018) ................................. 60

STATE STATUTES

Cal. Rev. & Tax. Code § 6204 ...................................... 62

Mo. Rev. Stat. § 144.049 .............................................. 32

N.M. Stat. Ann. § 7-9-95 ............................................. 32

N.Y. Tax Law § 1133(a) ............................................... 62

SDCL § 10-45-2 ..................................................... 23, 57

SDCL § 10-45-2.4 ........................................................ 23

SDCL § 10-45-4 ........................................................... 23

SDCL § 10-45-5 ........................................................... 23

SDCL § 10-45-22 ......................................................... 23

SDCL ch. 10-64 ........................................................... 23

SDCL § 10-64-1(10) .................................................... 23

SDCL § 10-64-2 ........................................................... 23

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Page

SDCL § 10-64-6 ....................................................... 7, 63

Wash. Rev. Code § 82.08.053(2) .................................. 55

OTHER MATERIALS

Absolunet, Top Ten Ecommerce Trends for 2018, https://absolunet.com/en/top-10-ecommerce- trends-will-impact-retailers-2018/ ......................... 52

Advisory Commission on Electronic Commerce, Report to Congress (Apr. 2000) ................................. 1

Joseph Bishop-Henchman, State Sales Tax Juris-dictions Approach 10,000 (Mar. 24, 2014), https:// taxfoundation.org/state-sales-tax-jurisdictions- approach-10000/ ...................................................... 20

Black Friday Got Blacker for Users of Automatic Sales Tax Software, Sales Tax Data Link (Dec. 2, 2015), http://www.salestaxdatalink.com/blog/ black-friday-got-blacker-for-users-of-automatic- sales-tax-software ............................................. 34, 35

Ike Brannon, Michelle Hanlon, Erin Miller, Inter-net Sales Taxes and the Discriminatory Burden on Remote Retailers – an Economic Analysis (Mar. 2018), http://ssrn.com/abstract=3140948 ........ 40

European Commission, Modernising VAT for cross-border B2C e-commerce (Dec. 1, 2016), https:// ec.europa.eu/taxation_customs/sites/taxation/ files/com_2016_757_en.pdf ..................................... 61

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Page

Federation of Tax Administrators, Sales Tax Rates and Vendor Discounts (Jan. 1, 2018), https://www.taxadmin.org/assets/docs/Research/ Rates/vendors.pdf .................................................... 38

Tonya Garcia, Amazon accounted for 60% of US online sales growth in 2015, MarketWatch (May 3, 2016), http://www.marketwatch.com/ story/amazon-accounted-for-60-of-online-sales- growth-in-2015-2016-05-03..................................... 50

Robert W. Goodlatte, Statement of Chairman Robert W. Goodlatte (Dec. 4, 2017), https:// goodlatte.house.gov/UploadedFiles/Efforts_to_ Resolve_the_Remote_Sales_Tax_Issue.pdf ............ 59

Billy Hamilton, Home Sweet Taxing Unit, 56 State Tax Notes 217 (Apr. 19, 2010) ....................... 35

Institute for Professionals in Taxation, Locally Administered Sales and Use Taxes (2016) ............. 19

Chris Isadore, Amazon to start collecting state sales taxes everywhere, CNN (Mar. 29, 2017), http://money.cnn.com/2017/03/29/technology/ amazon-sales-tax/index.html .............................. 2, 49

Naomi Jagoda, Supreme Court to hear online sales tax case, The Hill (Jan. 12, 2018), http:// thehill.com/policy/finance/368788-supremecourt-to-hear-online-sales-tax-case .......................... 6

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Terence Jeffrey, State and Local Income, Sales and Property Taxes All Hit Records in 2017, cnsnews.com (Mar. 22, 2018), https://www.cns news.com/news/article/terence-p-jeffrey/state- and-local-income-sales-and-property-taxes-hits- records-2017.pdf ...................................................... 52

Paige Jones, Congressional Paralysis Unlikely to End in Time to Tackle Online Sales, 87 State Tax Notes 432 (Jan. 29, 2018) ................................... 6

Larry Kavanagh, Expert Report Concerning the Costs and Burdens for Remote Sellers to Com-ply with Sales and Use Tax Collection Obliga-tions Imposed by Jurisdictions Throughout the United States, Including Alabama (Aug. 28, 2017), https://truesimplification.org/wp-content/ uploads/2017-08-29-Kavanagh-Report.pdf ............ 37

MEC Global, Spotlight on Webrooming (May 2016), http://www.wpp.com/wpp/marketing/consumer insights/spotlight-on-webrooming/ ......................... 51

Robert J. Moore, How Many Ecommerce Compa-nies Are There?, blog.rjmetrics.com (June 18, 2014), https://blog.rjmetrics.com/2014/06/ecommerce- companies-are-there/ .............................................. 37

National Tax Association Communications and Electronic Commerce Tax Project, Final Re-port (Sept. 7, 1999) ...................................... 15, 17, 31

N.Y. Dep’t of Tax. & Fin., Bulletin TB-ST-530 ........... 33

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Leslie A. Pappas, Amazon to Collect Tax on Third-Party Sales in Pennsylvania, Bloom-bergBNA (Mar. 5, 2018), https://www.bna. com/amazon-collect-tax-n57982089523/ ................. 49

PwC, The race for relevance, Total Retail 2016: United States (Feb. 2016) ........................................ 51

Report of the Special Subcommittee on State Taxation of Interstate Commerce of the House Committee on the Judiciary, H.R.Rep. No. 565, 89th Cong., 1st Sess. (1965) .................................... 12

Ernan Roman, Webrooming vs. Showrooming: Are You Engaging Both Types of Shoppers?, CustomerThink (Feb. 23, 2017), http://customer think.com/webrooming-vs-showrooming-are- you-engaging-both-types-of-shoppers/ .................... 52

Alina Selyukh, Overstock chairman has political missions in Washington DC and Utah, Reu-ters (Aug. 11, 2015) ................................................. 26

Daniel Shaviro, An Economic and Political Look at Federalism in Taxation, 90 Mich. L. Rev. 895 (1992) ................................................................ 13

Sara Spivey, Consumers have spoken: 2016 is the year of “webrooming,” Marketing Land (July 29, 2016), http://marketingland.com/consumers- spoken-2016-year-webrooming-180125 .................. 50

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Statement of Scott Peterson, former Director of the South Dakota Department of Revenue and former Executive Director of the SSUTA Governing Board, now Vice President U.S. Tax Policy, Avalara (Dec. 1, 2017), https://www.sana- commerce.com/us/blog-us/sales-tax-e-commerce- challenges/ ............................................................... 29

Statista, https://www.statista.com/statistics/304929/ us-online-shopping-order-value/ ............................... 54

Janet Stilson, Study Shows Prevalence ‘Web- rooming,’ Adweek (May 14, 2014), http://www. adweek.com/brand-marketing/study-shows- prevalence-consumer-webrooming-157576/ ........... 51

Streamlined Sales and Use Tax Agreement, Adopted November 12, 2002 and Amended Through December 19, 2017, http://www.stream linedsalestax.org/index.php?page=modules ... 5, 18, 31

Streamlined Sales Tax Governing Board, Inc., About Us, http://www.streamlinedsalestax.org/ index.php?page=About-Us .................................. 5, 18

Streamlined Sales Tax Governing Board, Inc., Streamlined Sales Tax Master Presentation (Aug. 1, 2011) http://www.streamlinedsalestax.org/ index.php?page=governing-board-presentation ........... 20

John A. Swain and Walter Hellerstein, The Po-litical Economy of the Streamlined Sales and Use Tax Agreement, National Tax Journal, Vol. LVIII, No. 3 (Sept. 2005) ......................................... 20

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United States Census Bureau, American Fact Finder, https://factfinder.census.gov/faces/table services/jsf/pages/productview.xhtml?pid=STC_ 2016_00A1&prodType=table .................................. 53

U.S. Census Bureau News, Quarterly Retail E-Commerce Sales 4th Quarter 2017 (Feb. 16, 2018), https://www.census.gov/retail/mrts/www/ data/pdf/ec_current.pdf ............................................. 9

United States Government Accountability Of-fice, SALES TAXES: States Could Gain Reve-nue from Expanded Authority, but Businesses Are Likely to Experience Compliance Costs (Nov. 2017) ....................................................... passim

Arthur Zaczkiewicz, Amazon, Wal-Mart, and Ap-ple Top List of Biggest E-commerce Retailers, WWD (Apr. 7, 2017), http://wwd.com/business- news/business-features/amazon-wal-mart-apple- biggest-e-commerce-retailers-10862796/ ................ 50

1

INTRODUCTION

In its quest to convince the Court to abrogate the physical presence standard of Quill Corp. v. North Da-kota, 504 U.S. 298 (1992), the State has not overcome a basic truth: state sales and use tax systems remain in-ordinately complex and burdensome during the Inter-net era, just as they were before it began. In 2000, when policymakers perceived the potential for the Internet to revolutionize commerce, the congressionally-authorized Advisory Commission on Electronic Com-merce (“ACEC”) issued the States a clear directive: “substantial simplification and reform of the current tax systems” is a necessary precursor to the expansion of state taxing authority over remote sellers. Advisory Commission on Electronic Commerce, Report to Con-gress (Apr. 2000) (“ACEC Report”) at 2. “Our system of federalism mandates that the burden of producing such a system falls on the states,” the Commission con-cluded. Id. Today, state sales tax systems are, on the whole, even more complex.

As South Dakota rushed this case through the state court system, the United States General Ac- countability Office (“GAO”) was conducting a detailed, fifteen-month study of the consequences if the physical presence rule were eliminated through federal legisla-tion. The GAO examined the impact of such a change on state sales tax revenues and the resulting burdens that would be imposed on remote sellers by the nation’s 12,000 state and local sales tax jurisdictions. See United States Government Accountability Office, SALES TAXES: States Could Gain Revenue from Expanded Authority,

2

but Businesses Are Likely to Experience Compliance Costs (Nov. 2017) (“GAO Report”).1 Notably, the State omits any reference to the GAO Report in its brief. The GAO’s factual findings, however, refute each of the core contentions of the State’s extended policy argument for abandoning the physical presence standard, dem- onstrating that there is no “special justification” for overruling Quill under established principles of stare decisis. Michigan v. Bay Mills Indian Cmty., 134 S.Ct. 2024, 2036 (2014).

First, rather than confirming widespread under-collection of state sales taxes, the GAO found that the States already receive tax on between 75 and 80% of all remote sales, and a higher percentage on sales by Internet retailers. GAO Report at 8-9, 39-44. In sharp contrast to the over $33 billion in annual uncollected sales tax claimed by the State (Pet. Br. at 35), the GAO concluded that the actual amount was only about one-quarter to one-third as much, or between $8.5 and $13.4 billion in 2017. GAO Report at 11-12. Im-portantly, the GAO Report is consistent with other market trends that indicate the level of uncollected sales tax is steadily declining, not increasing – most notably, as a result of the initiation of nationwide sales tax collection by Internet giant Amazon.com. Chris Is- adore, Amazon to start collecting state sales taxes every-where, CNN (Mar. 29, 2017) (“Isadore”), http://money.cnn. com/2017/03/29/technology/amazon-sales-tax/index.html.

1 The GAO Report was not issued publicly until December 18, 2017, eleven days after Respondents filed their brief in oppo-sition to the State’s petition.

3

Second, and even more significantly, the GAO Re-port undercuts the State’s erroneous claim that sales tax collection software is the “silver bullet” to eliminate the burdens of multi-state compliance. The State offers no independent, third-party study regarding the bur-dens of compliance, and instead relies on promotional materials and a journal article prepared by the very firms that stand to profit most if Quill is overruled, for its claim that sales tax software cures all ills. The non-partisan GAO found, in contrast, that the costs of sales tax compliance are manifold and significant: software installation, implementation, and integration; map-ping of thousands of products to software categories; per-transaction software licensing fees; internal staff-ing and administrative costs; legal fees incurred in dis-tant jurisdictions in connection with assessments and audits; and professional fees for keeping up to date on changes in the laws of thousands of taxing jurisdic-tions. See generally GAO Report at 15-27. Simply put, software “licensing fees are only one of multiple costs required to collect sales taxes in multiple states.” Id. at 19.

Third, the GAO Report demonstrates that the State misperceives both the economic rationale and practical effects of the Quill standard. The fundamen-tal calculus of the Quill Court was that the aggregate burdens associated with imposing multi-state tax col-lection on remote sellers were sufficiently great, and sufficiently harmful to the national economy, to war-rant the retention of a rule that relieved certain retail-ers from collecting sales tax, while requiring other

4

vendors to comply. 504 U.S. at 313 and n.6. The GAO Report, together with other analyses, shows that these burdens remain high, while uncollected sales/use tax revenue nationwide is far lower than projected, and de-clining.

Overruling Quill would cause direct harm to those businesses most in need of its protection. The GAO con-cluded that state sales tax collection would prove par-ticularly burdensome for smaller and medium-sized retailers that lack internal systems for multi-state tax compliance. GAO Report at 17. The largest Internet re-tailers, meanwhile, already collect the tax at rates ap-proaching traditional bricks-and-mortar sellers. The GAO found tax collection among the top 100 Internet retailers is between 87 and 96 percent. Id. at 41. The so-called non-collectors are primarily small and me-dium-size companies, especially start-ups and region-ally remote businesses for whom the Internet has enabled access to a national marketplace. Imposing the disparate requirements of 12,000 tax jurisdictions on such companies would effectively be a barricade across the Internet superhighway for thousands of companies, who would need to curtail their ambitions and limit their prospective markets. While South Da-kota points to its own, self-imposed sales threshold of $100,000 for requiring sales tax compliance, its paral-lel threshold of 200 transactions would capture small sellers with far lower sales, and nothing would prevent other states from adopting even lower thresholds.

The State and several amici point to the Stream-lined Sales and Use Tax Agreement (“SSUTA”) as having

5

achieved the goal of greater uniformity and standardi-zation of tax administration. The 202-page Agreement (including five appendices) is the product of a fifteen-year effort. It demonstrates the deep complexity of state tax systems and the extensive range of issues re-quiring simplification across states. See Streamlined Sales and Use Tax Agreement, Adopted November 12, 2002 and Amended Through December 19, 2017, http:// www.streamlinedsalestax.org/index.php?page=modules. The SSUTA is to be commended, as a good faith, if in-complete, effort towards simplification. If all states had voluntarily adopted its provisions, the burdens on in-terstate commerce might be dramatically reduced. The problem, however, is that the signatories to the SSUTA, which include South Dakota, are states with only one-third of the nation’s population. Streamlined Sales Tax Governing Board, Inc., About Us, http:// www.streamlinedsalestax.org/index.php?page=About-Us. The largest states, including California, Texas, New York, Florida, Illinois, and Pennsylvania, all refused to join, leaving the national system, as a whole, exceed-ingly complex.

The Respondents – indeed the entire direct mar-keting industry – are not unmindful of the interests the states have in obtaining sales/use tax revenue on transactions involving their residents, even if the states have mischaracterized the nature and dimen-sion of this issue. The appropriate approach should be one that provides a balanced solution – simplification of sales tax administration in return for expanded state tax authority. Congress has the means to craft

6

such legislation and is actively considering such measures. See generally Brief of Amicus Curiae Robert W. Goodlatte, et al., in Opposition to the Petition (Dec. 4, 2017). Overruling Quill, without addressing the bur-dens on remote sellers, would produce adverse conse-quences and the potential for substantial market disruption. In fact, South Dakota’s sole Congressper-son has cautioned what the impact of overruling Quill would be in the absence of federal legislation: “If the Supreme Court rules in South Dakota’s favor, it could become a marketplace free-for-all. A South Dakota small business, for instance, could be forced to comply with 1,000 different tax structures nationwide without the tools necessary to do so.” See Naomi Jagoda, Su-preme Court to hear online sales tax case, The Hill (Jan. 12, 2018) (quoting U.S. Rep. Kristi Noem (R.-S.D.)), http://thehill.com/policy/finance/368788-supreme-court- to-hear-online-sales-tax-case.

If Quill is overruled, the states will have no incen-tive to seek compromise federal legislation. Freed of Commerce Clause restraint on their taxing authority, states will oppose any congressionally-mandated re-strictions on their cross-border taxing power. As one high-ranking state official acknowledged, “If the Su-preme Court Rules in South Dakota’s favor, effectively overturning the Quill decision, ‘I don’t see why states would want Congress to do anything.’ ” See Paige Jones, Congressional Paralysis Unlikely to End in Time to Tackle Online Sales, 87 State Tax Notes 432 (Jan. 29, 2018) (quoting Max Behlke, Director of Budget and Tax Policy for the National Conference of State

7

Legislatures). Moreover, there would be no require-ment for states that have joined the SSUTA to remain members, let alone for other states to simplify their laws.

Of critical concern, overturning the physical pres-ence standard would expose thousands of businesses that have relied upon it to crippling, retroactive liabil-ity for uncollected tax. Harper v. Va. Dep’t of Taxation, 509 U.S. 86, 97 (1993) (“When this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect . . . ”) (ellipses added). Over 30 states have statutes already on the books requiring tax collection by sellers without a physical presence. See Appendix A. Only Quill stands in the way of states enforcing those laws. While South Dakota has disa-vowed such a backward-looking remedy in its statute (see SDCL §§ 10-64-6), other states have informed this Court that they may choose “to apply their laws retro-actively.” Brief for Colorado and 40 Other States, et al. (“States’ Br.”), at 19. A number of states have already begun to pursue back taxes based on an “economic presence” theory in anticipation of this Court overrul-ing Quill. See, e.g., Appendix C (letter dated Nov. 17, 2017, from the Connecticut DRS to The Swiss Colony, LLC). In most states, there is no statute of limitations for tax assessments against companies that did not file a sales tax return. See Appendix B.

A dispassionate analysis, like the one provided by the GAO, shows that current conditions do not reflect a crisis, although overruling Quill without needed

8

simplification may precipitate one. Abrogating Quill requires special justification. Bay Mills, 134 S.Ct. at 2036. None exists. Proper regulation of interstate com-merce, as a matter of national economic policy, falls to Congress. The ruling of the South Dakota Supreme Court should be affirmed.

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JURISDICTION

Even with regard to “important questions of vital national importance,” Washington v. Gen. Motors Corp., 406 U.S. 109, 112 (1972), the Court carefully guards its jurisdiction against disputes in need of factual devel-opment. Ohio v. Wyandotte Chems. Corp., 401 U.S. 493, 498-99 (1971) (this Court is an “inappropriate forum” for addressing cases that have enjoyed no development in the lower courts). In choosing to “fast-track” its ap-peal through the South Dakota court system without a factual record, the Petitioner has caused doubts about the proper exercise of this Court’s jurisdiction. See also Respondent’s Brief in Opposition to Petition for a Writ of Certiorari (“Resp. Br. in Opp.”) at 5-6, 12-18.

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STATEMENT

The Petitioner presents a lengthy policy argument that Quill should be overruled. An extended statement is required to set the record straight.

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I. Extent Of Ecommerce.

A restored perspective regarding the volume of re-tail ecommerce is in order. Electronic commerce, while growing rapidly, still represents only 9 percent of all retail sales, or about $453 billion. U.S. Census Bureau News, Quarterly Retail E-Commerce Sales 4th Quarter 2017 (Feb. 16, 2018), https://www.census.gov/retail/ mrts/www/data/pdf/ec_current.pdf. Traditional retail, which is also growing steadily, continues to comprise over 90 percent of the total market. Figures in the tril-lions of dollars for ecommerce, such as the $5.71 tril-lion figure cited in the Brief of Retail Litigation Center, Inc., et al. (“RLC Br.”), at 5-6, include manufacturing and wholesale sales, which are not subject to state sales tax and are not relevant to this case. See Brief for the United States (“U.S. Br.”) at 19-20. At the individ-ual firm level, the largest traditional retailer, Wal-Mart, remains more than four times as large as Ama-zon.com, by far the biggest ecommerce seller. (Both col-lect sales tax on their Internet sales.) In fact, relevant data indicate that retail ecommerce comprises a smaller percentage of total retail sales today than cat-alog sales did in 1992 when Quill was decided. State by and through Heitcamp v. Quill Corp., 470 N.W.2d 203, 209 (1991) (“mail order accounted for more than 15 percent of total sales nationally”), aff ’d in part and rev’d in part in Quill, 504 U.S. 298. If ecommerce is a retail “leviathan,” then traditional retail remains a co-lossus.

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II. History Of Remote Sales/Use Tax Treatment.

The State insists that the physical presence rule is a relic of a bygone era, whose justifications lie on the far side of the “digital divide.” Pet. Br. at 11. In fact, the justifiable concerns about unduly burdensome tax sys-tems that animated the Court’s decisions in Bellas Hess and Quill represent a continuing problem that spans both eras, and one that has generated even more intense interest among policymakers after the birth of the Internet. The continued consensus is that simplifi-cation of state sales tax systems must remain a para-mount objective for any solution to the difficult policy questions that underlie whether, and under what con-ditions, to permit expanded state taxing authority over remote sales transactions.

As a constitutional matter, the restriction on a state’s authority to compel collection of sales taxes by a company that lacks a physical presence in the state is long-standing. When, in 1967, the Court expressly recognized the “sharp distinction” between retailers with “outlets, solicitors, or property within a State” and “those who do no more than communicate with custom-ers in the State by mail or common carrier as part of a general interstate business,” the Court relied upon cases dating back to 1941. Nat’l Bellas Hess, Inc. v. Dep’t of Revenue, 386 U.S. 753, 757-58 (1967) (citing Nelson v. Sears, Roebuck & Co., 312 U.S. 359 (1941) and Scripto, Inc. v. Carson, 362 U.S. 207 (1960)). Indeed, the Supreme Court has never held, in any case, that a sales, use, or comparable tax could be imposed upon a retailer that lacks a physical presence in a state. To the

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contrary, a direct physical presence in the state, or in-state activities conducted by, or on behalf of, an out-of-state retailer, has been the hallmark of the Court’s state tax decisions for decades. See, e.g., Quill, 504 U.S. at 313-18; Tyler Pipe Indus., Inc. v. Wash. Dep’t of Rev-enue, 483 U.S. 232, 250 (1987) (third-party sales repre-sentative engaged in substantial activities in the state establishes nexus); Commonwealth Edison Co. v. Mon-tana, 453 U.S. 609, 626 (1981) (an “interstate business must have a substantial nexus with the State before any tax may be levied on it”) (italics in original); Nat’l Geographic Soc’y v. Cal. Bd. of Equalization, 430 U.S. 551, 556-58 (1977) (local office creates nexus) (survey-ing cases); Standard Pressed Steel Co. v. Wash. Dep’t of Revenue, 419 U.S. 560, 562-63 (1975) (in-state em-ployee creates nexus); Scripto, 362 U.S. at 211 (1960) (ten sales representatives soliciting orders in the state); Gen. Trading Co. v. State Tax Comm’n, 322 U.S. 335, 337-38 (1944) (traveling sales agents sent into the state); Felt & Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62, 65-66 (1939) (in-state sales agents soliciting sales). What occurs inside a state’s borders has always been the critical foundation for a state’s taxing and regula-tory authority; in short, borders matter.

A. 1967: Bellas Hess.

In applying this established principle in Bellas Hess, the Court was concerned that the national econ-omy would suffer if the more than 2,300 state and local jurisdictions that imposed a sales tax were free to re-quire tax collection by out-of-state businesses. Finding that the “impediments” to the conduct of interstate

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commerce would be “neither imaginary nor remote,” the Court explained:

For if Illinois can impose such burdens, so can every other State, and so, indeed, can every municipality, every school district, and every other political subdivision throughout the Na-tion with power to impose sales and use taxes. The many variations in rates of tax, in allow-able exemptions, and in administrative and record-keeping requirements could entangle [an] interstate business in a virtual welter of complicated obligations. . . .

386 U.S. at 759-60 (internal footnotes omitted and brackets added). In reaching this conclusion, the Court quoted the Congressional Report on which it relied for its findings. “[I]t is clear that, if just the localities which now impose the tax were to realize anything like their potential . . . the recordkeeping task of multistate sellers would be clearly intolerable.” Id. at 759 n.14 (citing Report of the Special Subcommittee on State Taxation of Interstate Commerce of the House Com-mittee on the Judiciary, H.R.Rep. No. 565, 89th Cong., 1st Sess. (1965), at 882) (brackets and ellipses added). Indeed, the multiplicity of jurisdictions, with their var-ying rates, tax bases, and requirements, is unique to the state and local sales tax system. No other form of taxation presents this same array and diversity of tax obligations.

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B. 1992: Quill.

By 1992, the situation had significantly worsened. The number of taxing jurisdictions had soared to over 6,000. Quill, 504 U.S. at 313 n.6. The Court explained how North Dakota’s attempt to compel tax reporting by an out-of-state retailer “illustrates well” the ways in which a use tax collection obligation could burden in-terstate commerce, because every jurisdiction could then follow suit. Id. The problem was not merely an issue of dozens of different rates, but also of different substantive requirements. Indeed, “even neighboring jurisdictions within the same state impose different classifications and rates, collect their own taxes sepa-rately, impose separate documentation requirements (such as the use of their own certificates attesting to tax exemption or that taxes have been paid), and con-duct their own audits.” Daniel Shaviro, An Economic and Political Look at Federalism in Taxation, 90 Mich. L. Rev. 895, 925-926 (1992) (cited by the Court in Quill, 504 U.S. at 313 n.6).

This was the sales tax system in place when Jeff Bezos began selling books over the Internet from his garage a few years later. But as electronic commerce quickly expanded, the complexity of state and local sales tax regimes only continued to increase.

C. 1997-2000: ACEC And NTA Project.

Policymakers soon took note of the inherent incom-patibility between state sales tax systems and modern electronic commerce. In 1998, Congress enacted the

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Internet Tax Freedom Act. See 47 U.S.C. § 151 note (made permanent in 2016, P.L. 114-125, Sec. 922(a)) (“ITFA”). Through the ITFA, Congress explicitly lim-ited the authority of states and localities to impose “multiple or discriminatory taxes” upon electronic commerce, including sales tax collection obligations, that targeted transactions conducted online. P.L. 105-277, ITFA §§ 1101(a)(2), 1104(8)(a)(ii) (1998).

Congressional focus was not, however, limited to preventing discrimination. Through the ITFA, Congress established the Advisory Commission on Electronic Commerce, comprised of three executive branch offi-cials, eight state and local government representatives, and eight businesspeople representing ecommerce com-panies, telecommunications carriers, and local retailers, with a broad mandate to study federal, state and local, and international taxation of transactions using the Internet. Id. §§ 1102(a), (g). The Commission con-ducted formal meetings, gathered information, inter-viewed experts, and heard from witnesses on all sides of the issues concerning taxation of ecommerce.

In its Report to Congress, issued in April 2000, the ACEC emphasized the fundamental complexity of state and local tax systems, and the need for simplifi-cation. ACEC Report at 2. The ACEC took note that there were over 7,500 state and local governments that levied a sales tax in 2000. Id. at 17. Admonishing states that it “should not be presumed that the collection of sales and use taxes on Internet transactions is an in-evitability,” the ACEC stressed the necessity of “sub-stantial simplification and reform of the current tax

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systems if they are to continue to remain viable in the 21st century.” Id. at 2. In recommending that the “hall-mark of the system should be simplicity, efficiency and fairness,” the ACEC concluded:

Our system of federalism mandates that the burden of producing such a system falls on the states. The proposals adopted by a majority of the Commissioners suggest giving the states five years to simplify their state and local transaction tax systems in a manner which would equalize the burdens of tax collection for local and remote sellers. . . . By eliminat-ing any disparate burden on interstate com-merce, states will have a pathway toward a system that extends their collection of exist-ing state taxes to remote sellers.

Id. (ellipses added).

Concurrent with the work of the congressionally-authorized ACEC, the National Tax Association undertook its own Communications and Electronic Commerce Tax Project (“NTA Project”). See NTA Pro-ject, Final Report (Sept. 7, 1999) (“NTA Report”). Initi-ated in August 1997, the NTA Project brought together over 70 representatives of state and local governments (including representatives of the NGA, NCSL, FTA, MTC and NLC, all participating amici here), the busi-ness community, professional organizations, and aca-demia to explore solutions to the state and local challenges presented by electronic commerce. NTA Re-port at 2. The NTA Project issued a consensus recom-mendation for simplification – that there should be

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only one sales/use tax rate per state, for all commerce. The NTA Project also generated “a number of simplifi-cation suggestions that could reasonably seem to be implemented and make a significant reduction in the burden of sales tax administration.” NTA Report, Ex-ecutive Summary at ii, vi.

Notably, the NTA Project determined that “[s]im-plification of the current sales and use tax administra-tion is critical, regardless of whether consideration is given to extending the duty to collect to certain remote sellers.” Id. at vii (italics added).

The NTA’s focus on state and local sales taxes al-lowed it to explore, in even greater detail than the ACEC, the complexities of the national sales tax sys-tem. Its review is telling. The NTA Report addressed the following areas in need of simplification: differing registration forms and requirements (id. at 54); multi-ple tax returns and differing filing and remittance re-quirements (id. at 55-56); inconsistent rules for bad debts and other deductions (id. at 56-58); varying re-fund claim procedures (id. at 59); widely differing standards and recordkeeping requirements for docu-menting and administering exempt sales (id. at 59-62); consumer payments by check and potential vendor lia-bility for underpayment (id. at 62-63); inconsistent tax treatment of shipping charges, including taxability, ad-ministration, and measure (id. at 64); burdensome and expensive audits in multiple jurisdictions (id. at 64-66); cumbersome assessment and appeals processes (id. at 66-68); and inadequate vendor compensation for

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the costs of compliance, including none at all in nearly 20 states (id. at 69-70).

The NTA was unequivocal in its assessment of the steps necessary to give consideration to extending the duty to collect sales tax to remote sellers:

State and local sales taxes and their admin-istration are confusing and burdensome. The complexity of today’s sales tax arises from the interaction between the sovereignty of states in our federal system and the limitations im-posed on that sovereignty by the U.S. Consti-tution in support of a national market. In current circumstances, the states should reex-amine and coordinate their decentralized tax systems to reduce administrative burdens.

NTA Report at 49.

D. 2002 To The Present: SSUTA To The GAO.

The Streamlined Sales and Use Tax Project grew directly out of the NTA Project. It reflected a “hybrid” approach under which “[i]nterested states could de-velop a multistate tax compact creating a harmonized tax system,” so that Congress could determine whether to authorize participating states to require sales tax collection by remote sellers. Id. at 80. Such a system, while recognizing state autonomy, would retain Con-gress’ “appropriate control over the jurisdictional reach of state tax systems and protect interstate com-merce from undue burdens due to inconsistent state tax practices.” Id.

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The Streamlined Project crafted the terms of a comprehensive agreement that was adopted in Novem-ber 2002. The SSUTA’s avowed purpose is “to simplify and modernize sales and use tax administration in the member states in order to substantially reduce the burden of tax compliance.” SSUTA § 102. Today there are 24 member states which together comprise approx-imately 31 percent of the population. Streamlined Sales Tax Governing Board, About Us, http://www. streamlinedsalestax.org/index.php?page=About-Us.

Like the NTA Project, the SSUTA illustrates the complexity and variability of state sales tax sys-tems across the United States. By its own account, the SSUTA addresses ten different general subject areas of state sales tax systems: state level administration of tax collections; uniformity in state and local tax bases; uniformity of tax definitions; centralized registration; simplification of state and local tax rates; uniform “sourcing” rules; simplified administration of exemp-tions; simplified returns; simplified tax remittances; and consumer privacy. Id. Within these broader subject areas, the agreement covers topics of bedeviling com-plexity for multi-state sellers, such as sales tax “holi-days;” tax “caps” and thresholds limiting, or triggering, sales tax on particular products; “bundled” transac-tions in which products and services subject to differ-ent tax treatments are sold together; and special rules for digital products. See SSUTA, Art. III.

The SSUTA requires 202 pages to address all of the complexities. It has five appendices, including “librar-ies” of definitions, interpretations, and tax administration

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practices. Id. Apps. C, D, and E. It has been amended dozens of times and numerous working groups address the many, varied, and complex issues of tax admin-istration that arise.

The SSUTA simplification effort has yielded some dividends. The SSUTA has attracted over 3,800 regis-trants, many of them multi-channel retailers or remote sellers collecting tax on Internet or catalog sales that have agreed to collect tax in the SSUTA states. See Brief for Amicus Curiae Streamlined Sales Tax Gov-erning Board, Inc. at 9.

But by the most important measure – state partic-ipation – the SSUTA has failed in its objective to sim-plify the complexity and burdens of state tax systems nationwide. States representing nearly seventy per-cent of the United States population are not members of the SSUTA. None of the several largest states – Cal-ifornia, Texas, New York, Florida, Illinois, Pennsylva-nia – are members. None of the states with local “home rule” jurisdictions, which generate the greatest levels of complexity and compliance burden2 – including

2 “There are complexities associated with collecting local sales taxes under any regime, even those that are administered by a state agency. Locally administered sales taxes represent a special case in this regard because a taxpayer is required to inter-act separately with each local government with which it is re-quired to file and because the locally administered taxes often differ materially from the counterpart state tax and from one an-other, even within the same state.” Institute for Professionals in Taxation, Locally Administered Sales and Use Taxes (2016), at 4.

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Alabama, Alaska, Arizona, Colorado, Idaho, and Loui-siana – are members.

As a result, the commendable simplification measures promoted through the SSUTA have not apprecia-bly alleviated the burdens that would be imposed upon remote sellers in the absence of the Quill rule. To the contrary, overall complexity has continued to grow. In September 2005, leading commentators assessing the prospects of the SSUTA noted that “structural flaws in the [sales] tax – present since its inception – are in-creasingly highlighted by an ever expanding global, service-oriented, and digital economy. Preeminent among these flaws has been the complexity of compli-ance with a multiplicity of non-uniform state and local sales tax regimes.” John A. Swain and Walter Heller-stein, The Political Economy of the Streamlined Sales and Use Tax Agreement, National Tax Journal, Vol. LVIII, No.3 (Sept. 2005), at 605. Six years later, the Ex-ecutive Director of the SSUTA declared that “[c]ompli-ance with sales tax laws by multi-state corporations is too complex.” Streamlined Sales Tax Master Presenta-tion (Aug. 1, 2011), at 4, http://www.streamlinedsalest tax.org/index.php?page=governing-board-presentation. And in 2014, the number of state and local tax juris-dictions reached 10,000. Joseph Bishop-Henchman, State Sales Tax Jurisdictions Approach 10,000 (Mar. 24, 2014), https://taxfoundation.org/state-sales- tax-jurisdictions-approach-10000/.

In 2016, two United States Senators asked the GAO to study the remote sales tax issue. GAO Report at 1. Over a fifteen-month period, the GAO conducted

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independent research and interviewed officials from state revenue agencies, subject matter specialists, trade associations, and a wide variety of retailers mak-ing remote sales, regarding the real-world experience of sales tax collection. Id. at 2-3. In December 2017, it published its Report.

The GAO began by noting that across the 46 states (including the District of Columbia) that have a sales tax, the estimated number of local jurisdictions is as high as 12,000. Id. at 3. It found that the cost of both collecting and remitting sales tax rises as a company faces increased exposure to additional tax jurisdic-tions. Id. at 16. Furthermore, “[a]s the number of juris-dictions for which a business collects taxes increases, the amount of administrative work also increases.” Id.

The GAO found that the burdens go far beyond buying sales tax compliance software, making it no “cure-all” for retailers’ compliance burdens. Moreover, the initial costs of software set-up are high, especially for businesses not already using software for multi-state tax collection. Id. at 17. Retailers need to engage in expensive “mapping,” coding, customization, and sys-tem integration, which requires, among other things, coding all of a retailer’s products for applicable taxa-tion categories. Id. at 17-18.

The GAO also found substantial costs not related to software implementation and integration. Multi-state sellers may be under perpetual audit, especially in non-SSUTA states. “A representative from the tax

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department of one company with nexus in most states said that auditors return every few years to audit the company and that they are currently contending with 8 to 10 audits from different tax authorities.” Id. at 21. Moreover, some audits last for years. See id. (referenc-ing a business that had just dealt with an expensive, three-year audit). Remote sellers reported that they simply do not have the resources to comply with simi-lar audits from multiple jurisdictions. Id.

In sum, the GAO Report tells a very different story about the burdens of multi-state tax compliance in the modern economy than the Petitioner describes in its brief. The states have not collectively responded to the advice and direction of the congressionally-sponsored ACEC and the nonpartisan NTA by simplifying and making more uniform their tax systems. The GAO’s findings demonstrate that, substantively and practi-cally, the complex and burdensome nature of the U.S. sales tax system that existed in 1992, compounded by the ever-expanding number of tax jurisdictions, still exists today. In arguing that remote sellers can now easily and inexpensively comply with nationwide sales tax obligations, neither South Dakota nor its amici even mention the GAO Report.

III. South Dakota Sales Tax.

The South Dakota sales tax is imposed upon “the privilege of engaging in business as a retailer,” meas-ured by the gross receipts from sales of tangible per-sonal property, products transferred electronically, and

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services. SDCL §§ 10-45-2, 10-45-2.4, 10-45-4, 10-45-5. There is no provision expressly requiring collection of the tax, but retailers “may add the tax imposed by this chapter to the price of their product or service.” Id. § 10-45-22.

In March 2016, South Dakota enacted Senate Bill 106, “An act to provide for the collection of sales taxes from certain remote sellers” (the “Act”), now codified at SDCL chapter 10-64. The Act amended the sales tax code to require any seller that does not have a physical presence in the state to report sales tax based on stat-utory thresholds of $100,000 in sales or 200 transac-tions for delivery into South Dakota in the previous or current calendar year. Id. § 10-64-2. In devising these standards, the legislature found that “a decision from the Supreme Court of the United States abrogating its existing doctrine” would be necessary for the Act to be enforced. Id. § 10-64-1(10).

IV. Proceedings Below.

The State filed suit in April 2016, targeting the Respondents while conceding they were acting law-fully in not collecting sales tax. See id.; Complaint ¶ 24. In their Joint Answer, the Respondents admitted that each of them: (a) lacks a physical presence in South Dakota; (b) had gross revenue in 2015 from South Da-kota sales in excess of $100,000, and/or sold tangible personal property for delivery into South Dakota in 200 or more transactions; and (c) is not registered to collect South Dakota sales tax. The Respondents

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denied all other factual assertions in the Complaint, including the “legislative findings” that supported the Act. Defendants’ Joint Answer ¶¶ 43-50. No other facts are established by the proceedings below. See Resp. Br. in Opp., Addenda A & B (Statement of Undisputed Ma-terial Facts and the State’s response).

In March 2017, the circuit court awarded sum-mary judgment to the Respondents on the grounds that the Act is directly at odds with Quill. Pet. App. B. On September 13, 2017, the South Dakota Supreme Court, finding “no distinction between the collection obligations invalidated in Quill and those imposed by Senate Bill 106,” affirmed the entry of judgment for the Respondents. Pet. App. A.

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SUMMARY OF ARGUMENT

Under the well-established doctrine of stare deci-sis, overruling Quill requires “special justification.” Bay Mills, 134 S.Ct. at 2036. Multiple factors demon-strate that the State cannot meet this high burden.

As the State acknowledges, reliance by remote sellers on the physical presence standard based on con-cerns about the inordinate burdens of multi-state tax compliance is “legitimate.” Pet. Br. at 55. Contrary to the State’s contention, inadequate sales tax software and faulty tax rate “look-up” tables do not eliminate the most costly and burdensome tasks of compliance required by the excessively complicated U.S. sales tax

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system. Moreover, software adds new expenses to the process.

The Quill Court did not misunderstand the clear economic calculus before it. Rather, it made a consid-ered judgment that the aggregate burdens of nation-wide sales tax collection, and their impact on the national economy, justified the retention of the physical presence rule. That economic assessment still makes sense today and is not minimized by the State’s flawed assumption that the real-world burdens of multi-state sales tax compliance do not exist.

No decision of this Court has ever questioned the holding of Quill; in fact, the Court has cited it favorably since 1992. Likewise, no lower court has questioned Quill’s conclusions with regard to state sales/use taxes, as opposed to other kinds of taxes that impose lesser compliance burdens. Indeed, the physical presence test is straightforward and readily applied in the vast ma-jority of circumstances. Limited litigation regarding de minimis physical presence does not undermine the rule’s “workability.”

Changed conditions in the retail marketplace also cannot justify the abrogation of the physical presence rule where the constitutionally-significant conditions – undue burdens derived from excessively complicated state sales tax systems – remain unchanged. The State, moreover, mischaracterizes market conditions and trends that show, contrary to the State’s hyper-bolic predictions, that uncollected revenues are far lower than previously estimated and declining, as

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electronic commerce is increasingly dominated by large, tax-collecting, omni-channel retailers.

Neither alternate standard presented by the State and its amici is viable. Individual state sales and transaction thresholds, like those contained in the Act, would be the antithesis of a settled rule and would eliminate any meaningful limit on state taxing author-ity. In addition, the balancing test of Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), is incompatible with the nationwide focus required for assessing the impact of inconsistent state sales tax regimes on interstate commerce. Courts are ill-equipped to perform the com-plex economic analyses such a test would require. See Dep’t of Revenue v. Davis, 553 U.S. 328, 353-56 (2008) (rejecting Pike balancing due to the “unsuitability of the judicial process and judicial forums” for predicting the economic consequences of changes to established market rules).

Instead, Congress is the institution best-suited to resolve the competing interests in remote sales tax col-lection and to select the proper policy outcome – a goal that the Respondents and almost all remote sellers support. Alina Selyukh, Overstock chairman has polit-ical missions in Washington DC and Utah, Reuters (Aug. 11, 2015) (discussing Overstock’s support for fed-eral legislation to address the “patchwork of laws that just makes it hard to do business”). Overruling Quill would complicate, if not prevent, a congressional solu-tion. Absent the physical presence standard, the states would no longer be interested in compromise. Jones, 87 State Tax Notes 432. The potential for severe economic

27

disruption is great. Small businesses seeking access to a national market, not the massive multi-channel re-tailers that already report sales tax across the country, will be harmed most by the new compliance burdens, new barriers to entry, and new obstacles to growth.

Overruling Quill also presents even “thorn[ier] questions concerning the retroactive application” of sales taxes than were present in Quill. 504 U.S. at 318 n.10 (brackets added). Over 30 states have laws that would support state efforts to impose retroactive liabil-ity on sellers that relied upon Quill. See App. A. Some states are already seeking to impose back taxes on sellers with no physical presence, in anticipation of Quill being overruled. E.g., App. C. The States have acknowledged to the Court that they may pursue such claims. No meaningful impediment would stand in their way – but Congress can craft legislation that would allow states that simplify and make more uni-form their systems to require prospective collection.

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ARGUMENT

I. There Is No Special Justification For Over-ruling Quill.

The doctrine of stare decisis is “a foundation stone of the rule of law.” Kimble v. Marvel Entm’t, LLC, 135 S.Ct. 2401, 2409 (2015) (quoting Bay Mills, 134 S.Ct. at 2036). Adherence to prior precedent is “the preferred course because it promotes the evenhanded, predicta-ble, and consistent development of legal principles,

28

fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial pro-cess.” Bay Mills, 134 S.Ct. at 2036 (quoting Payne v. Tennessee, 501 U.S. 808, 827 (1991)). A party arguing that precedent should be overruled must therefore show that there is “special justification” for abrogating the decision. Id. (citation omitted).

Furthermore, as Justice Scalia noted in Quill, stare decisis applies with enhanced strength with re-spect to the Court’s dormant Commerce Clause deci-sions because Congress “remains free to alter what we have done.” Quill, 504 U.S. at 320 (Scalia, J., concur-ring) (citing Patterson v. McLean Credit Union, 491 U.S. 164, 172-73 (1989)). Since the legislative branch “exercises primary authority in this area,” stare decisis has “special force.” Bay Mills, 134 S.Ct. at 2036 (citing Patterson, 401 U.S. at 172-73) (addressing issue of tribal sovereign immunity).

A. Retailers Have Justifiably Continued

To Rely On Quill.

There can be no doubt that remote sellers employ-ing a wide range of direct marketing methods (cata-log/mail order, television/infomercial, telemarketing, Internet) have continued to rely upon Quill. And with good reason. As South Dakota’s own former, long-time Director of Revenue recently acknowledged, state and local sales tax compliance involves differing rules for “what gets taxed, how much tax to apply, and how to file a return and pay the tax,” all of which “greatly

29

increases the complexity.” Statement of Scott Peterson, former Director of the South Dakota Department of Revenue and former Executive Director of the SSUTA Governing Board, now Vice President U.S. Tax Policy, Avalara (Dec. 1, 2017), https://www.sana-commerce.com/ us/blog-us/sales-tax-e-commerce-challenges/.

Perhaps most importantly, the physical presence rule has permitted start-ups and small businesses to use the Internet as a means to grow their companies and access a national market, without exposing them to the daunting complexity and business-development obstacles of nationwide sales tax collection.

2. Retailers Were Entitled To Take This

Court At Its Word.

The State concedes that retailers have a legiti-mate reliance interest with respect to inordinate com-pliance costs, Pet. Br. at 55, but argues that remote sellers should have divined from dicta in Quill, as well as from congressional authority to legislate in this area, and from the independent obligation of consum-ers to self-report use tax, that the physical presence standard for sales tax collection could not last. Id. at 54-55. These arguments would counsel parties to dis-trust the rule of law, but Justice Scalia has already pro-vided the answer to such weightless contentions in his concurrence in Quill. It would be fundamentally in-compatible with stare decisis to “demand that private parties anticipate” the overruling of precedent and to “visit economic hardship upon those who took us at our

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word.” Quill, 504 U.S. at 320 (Scalia, J., concurring) (“reliance upon a square, unabandoned holding of the Supreme Court is always justifiable reliance”) (italics in original).

2. Reliance In Light Of Continued Com-

pliance Burdens Is Plainly Reasonable.

The State admits that reliance on Quill is proper – indeed, “legitimate” – if the burdens of multi-state tax collection remain excessive. Pet. Br. at 55. This ad-mission is telling, because every considered assess-ment in the Internet era (ACEC, NTA, SSUTA, GAO) has concluded that sales tax systems remain exceed-ingly complex. The concerns regarding undue burden that animated the decision in Bellas Hess and its re-tention in Quill are as valid today as they were in 1967 and 1992.

a. Sales Tax Software Does Not Elim-

inate The Compliance Burdens.

The State acknowledges that the number of tax ju-risdictions continues to grow and does not dispute that they have disparate substantive and administrative requirements. The only response that the State pre-sents to such inordinate complexity is software. In ef-fect, no matter how monstrously complex the states choose to make their sales tax codes, software (or, per-haps, cloud computing) is the “silver bullet” to slay the beast.

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Even the proponents of the “super-software-fix” do not argue that software reduces the complexity. Instead, they argue that software makes complexity ir-relevant. While sales tax software and tax rate “look-up” tables may help remote sellers address one discrete issue, they present a range of costs of their own, and fail to address many of the most burdensome aspects of multi-jurisdiction tax collection. Indeed, software alone barely scratches the surface.

The NTA Report and the SSUTA demonstrate the shortcomings of software as a purported solution to the burdens of compliance with 12,000 jurisdictions na-tionwide. Challenges unaddressed by software include: varying and complex rules for “sourcing” products and, in particular, services, to the proper jurisdiction; non-uniform product definitions across states, and even within states for those having “home rule” jurisdic-tions; special tax “caps” and thresholds for particular products; different provisions for defining, substantiat-ing, and taxing “bundled” transactions; specific re-quirements for proof of, and record keeping for, exempt transactions; inconsistent rules for bad debts and de-ductions; varying refund claim procedures; complexi-ties associated with consumer payments by check;3 inconsistent tax treatment of shipping charges; and cum-bersome and expensive audits and appeal processes. See generally SSUTA, Art. III; NTA Report at 54-70.

3 See Amicus Curiae Brief of American Catalog Mailers As-sociation in Opposition to the Petition (Dec. 7, 2017), at 7 (“On average 11% of catalog purchases are paid by check, and some catalog sellers receive checks for more than 30% of their sales.”).

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A few examples illustrate the point. Twelve states have adopted sales tax “holidays,” short term exemp-tions from tax for selected categories. In at least three states, however, local jurisdictions within the state can opt out of participation in the holiday, so the exemp-tions may apply for only certain localities. Even more daunting, different states apply the exemption to dif-ferent categories and subcategories, and further define the same general categories and subcategories differ-ently. States differ as to whether the holiday applies to the time of the order, time of the shipment, or time of the payment. Specific “back-to-school” tax holidays are authorized in several states; some cover clothing but exclude clothing accessories; some include footwear, while others do not; some include school supplies, but define the covered products differently; many set caps on the maximum exempt amount of purchases of par-ticular products. The variations are nearly endless. See, e.g., Mo. Rev. Stat. § 144.049; N.M. Stat. Ann. § 7-9-95.

State and local taxes often treat the same transaction differently. Take the tax treatment of clothing in New York, which has 84 local sales tax jurisdictions:

Clothing, footwear, and items used to make or repair exempt clothing sold for less than $110 per item or pair are exempt from the New York State 4% sales tax, the local tax in localities that provide the exemption, and the ⅜% Metropolitan Commuter Transportation

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District (MCTD) tax within exempt localities in the MCTD.

N.Y. Dep’t of Tax. & Fin., Bulletin TB-ST-530. Put simply, items of clothing and footwear costing under $110 are exempt from New York’s 4% state sales tax. However, local jurisdictions can require merchants to charge local sales tax on clothing costing less than $110. Under this provision, if Quill is overruled and a small woolen garments manufacturer in Minnesota sells a sweater to a buyer in New York City, which fol-lows the state tax exclusion for clothing, no sales tax is charged. However, the same sale to a customer in White Plains, in Westchester County, must include the 4% local sales tax, because Westchester is among the majority of New York counties that does not exempt clothing under $110. Westchester County also charges the 0.375% MCTD tax. So for this transaction, the Min-nesota seller would not charge its customer the 4% New York state sales tax, but it would charge the 4% local sales tax rate and the 0.375% MCTD tax.

It gets more confusing if the Minnesota company sells a sweater for $100 and a coat for $150 as part of the same transaction. On a sale to a Manhattan cus-tomer, there would be zero sales tax on the sweater, but the full New York City sales tax rate of 8.875% would apply to the coat. On a sale of those same items deliv-ered to a buyer in White Plains, the seller must charge the 4% Westchester County tax and the 0.375% MCTD rate on both items, and would be required to charge 4% New York state sales tax on the coat. There is no soft-ware solution for this compliance obstacle. A remote

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seller would need to code and compute manually the applicable tax and hope it does so correctly.

The administration of exemption certificates is an-other challenge. In order to avoid the obligation to col-lect tax on an exempt purchase, a retailer must obtain the proper form of tax exempt certificate from the pur-chaser. Categories of tax exempt sales include sales-for-resale, sales to exempt purchasers (such as chari-ties and schools), and sales of products for an exempt use (such as a specific agricultural or manufacturing purpose), among others. With the exception of sales-for-resale, each of these categories is likely to be de-fined differently from state to state. In addition, while there are some multi-state certificates accepted in cer-tain states, many states require their own, particular forms be used to substantiate the exempt purchase.

Beyond the many problems left unaddressed alto-gether, there are other shortcomings of sales tax soft-ware. Like any complex product, software includes errors and occasionally breaks down, potentially with dramatic consequences. Avalara, arguably the market leader in sales tax compliance software, suffered a soft-ware failure on one of the busiest shopping days of the year – the Friday after Thanksgiving. See Black Friday Got Blacker for Users of Automatic Sales Tax Software, Sales Tax DataLink (Dec. 2, 2015), http://www. salestaxdatalink.com/blog/black-friday-got-blacker-for- users-of-automatic-sales-tax-software. Retailers reported that the “software created error messages during check out so frequently that many sellers had to turn the

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software off,” preventing tax collection and exposing them to liability. Id.

The State touts the free, tax rate “look-up” service offered by TaxCloud as accurately providing the sales tax rate for any address in the United States based on a simple search. Pet. Br. at 45 (inviting one to “try it”). In fact, it takes only a few moments to discover that TaxCloud is rife with errors. For example, TaxCloud’s look-up function produces incorrect sales tax rates for addresses across South Dakota, including for the State Capitol Building (500 E. Capitol Avenue in Pierre) and the well-known Wall Drug Store (500 Main Street in Wall). See Appendix D (examples of TaxCloud errors in South Dakota). If TaxCloud generates multiple errors for South Dakota on a cursory review, it is certain to produce thousands of errors nationwide.

The problem, of course, is that the incredible num-ber and variation of local taxing jurisdictions – includ-ing not only cities and counties, but also parishes, stadium districts, transportation districts, water dis-tricts, scientific and cultural facilities districts, and police jurisdictions, among others – often do not corre-spond with zip codes or even municipal or county boundaries, making tax compliance difficult, at best. See Billy Hamilton, Home Sweet Taxing Unit, 56 State Tax Notes 217-22 (Apr. 19, 2010) (addressing the chal-lenges associated with local taxing jurisdictions).

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b. Sales Tax Software Adds To The High Costs Of Compliance.

Sales tax software also adds new categories of ex-pense. At best, it tends to convert requirements that were previously impractical into tasks that are ex-tremely expensive. The GAO Report is instructive. In addition to license fees and “labor-intensive product-mapping work” just to get the process started, there are integration costs. GAO Report at 17-20. Moreover, “businesses using customized software or software that is not in common use may see higher costs to in-tegrate these systems.” Id. at 18. Merely using soft-ware may prove surprisingly expensive. Since each time an online customer changes goods in a shopping cart, a new look-up request must be made to the re-mote software provider’s database, “businesses must account for both completed transactions as well as how often customers change” products in the website’s shopping cart. Id. at 19. “Our market research found licensing costs . . . as high as $200,000 per year for un-limited information requests.” Id. (ellipses added).

Other analyses demonstrate that the implementa-tion and integration of sales tax software, as well as the ongoing license and maintenance costs for such a product, are extremely high. Respondent Newegg sub-mitted an expert report concerning the costs of compli-ance in a tax appeal it filed to contest an assessment of use tax under Alabama’s 2016 “economic nexus” rule. Newegg v. Ala. Dep’t of Revenue, Ala. Tax Tribunal No. S 16-613 (“Newegg v. Ala. DOR”). The report ex-plains that sales tax software is not “plug-and-play”

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but involves considerable expense for a retailer to adapt new software to its existing systems and main-tain over time. Newegg’s expert projected the average cost for a small to medium-sized business for imple-mentation and integration of software at between $80,000 and $270,000. Larry Kavanagh, Expert Report (Aug. 28, 2017), available at https://truesimplification. org/wp-content/uploads/2017-08-29-Kavanagh-Report. pdf. The report describes even higher costs for a larger retailer, like Overstock or Newegg. Id. On an annual basis, the report estimates costs for a small to medium-size retailer of $57,500 to $260,000.

There are approximately 90,000 online retailers of meaningful scale (over $1 million in sales) in the United States. Robert J. Moore, How Many Ecommerce Companies Are There? (June 18, 2014), https://blog. rjmetrics.com/2014/06/18/how-many-ecommerce-companies- are-there/. At these levels of expense, assuming 90,000 affected retailers and $150,000 in annual costs, the ag-gregate burden associated with managing the tax col-lection and remittance function (a total of $13.5 billion) is enormous, even before adding the costs of admin-istration and audit defense.

The so-called “free” software that the State and its amici reference in their briefs is primarily, if not ex-clusively, associated with the SSUTA states, because the SSUTA allows software providers to become “certi-fied” and receive compensation from the participating states based on the taxes collected and remitted using the certified software. The SSUTA, however, does not cover integration costs or compensate retailers for the

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time they must devote to implementing and maintain-ing such software, or for lost sales they suffer when the software does not function properly. Still, this provi-sion for compensation represents a reasonable, if par-tial, simplification measure. The problem is evident, however: given the SSUTA’s limited membership, no such provision is made by states representing nearly 70 percent of the population.

Although South Dakota claims that other states provide vendor discounts to compensate retailers for tax compliance costs, the amounts are generally very low (1 to 3 percent of tax collected) and subject to caps that leave them woefully short of a retailer’s actual costs. Federation of Tax Administrators, Sales Tax Rates and Vendor Discounts (Jan. 1, 2018), https://www. taxadmin.org/assets/docs/Research/Rates/vendors.pdf. South Dakota’s rate, for example, is 1.5 percent of the tax collected, subject to a $70 per month cap. Id.

None of this expense accounts for the largest po-tential cost if retailers are required to report tax in every state and hundreds of “home rule” local jurisdictions: audits, assessments, and appeals. If Quill is overruled, multi-state retailers can expect multiple simultaneous audits. See GAO Report at 21. Respond-ing to audits and assessments requires companies to incur the cost of outside professionals, such as account-ants and attorneys in distant states, a potentially crip-pling expense for small businesses, in particular.

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B. Quill Was Correctly Decided.

This Court adopted the physical presence stand-ard in Bellas Hess by a 6-3 majority, and reaffirmed it by an 8-1 majority in Quill. Although each decision drew a dissent, the logic of the decisions is sound: due to the complexity of state sales tax systems, nation-wide tax compliance would impose an undue burden on interstate commerce. This conclusion, supported in Bellas Hess by a recent congressional report, and reaf-firmed in Quill by the mushrooming of local jurisdic-tions, prompted the Court to require that a company must be physically present in a jurisdiction in order to be subject to that government’s tax requirements. See Bellas Hess, 386 U.S. at 759-60 and n.14 (citing H.R.Rep. No. 565 (1965)); Quill, 504 U.S. at 313-18 and n.6. In Quill, that fundamental logic was further rein-forced by the important values of stare decisis. 504 U.S. at 317-18.

The State attacks the economics of Quill, but it fails to credit properly – or simply assumes away – the economic significance for the national market of the collective burdens of state and local tax compliance. Quill, 504 U.S. at 312 (nexus for Commerce Clause pur-poses concerns structural effects on the national econ-omy, not the treatment of individual retailers). The Quill rule is not based on “shaky economic reasoning.” See Kimble, 135 S.Ct. at 2412. The Quill Court fully understood the argument that protecting remote sellers from sales tax obligations in states where they have no physical presence purportedly gives them a price advantage over in-state retailers. 504 U.S. at 304

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n.2 (referencing the lower court’s conclusion that the physical presence standard affords a competitive ad-vantage to out-of-state businesses). The question was whether the burdens of nationwide use tax collection would, in counterpoise, unduly burden such sellers and hinder interstate commerce. The Court concluded that they would.

The State’s theoretical argument that the physical presence rule discourages cross-border investment is refuted by the market itself. Today, online retailers face intense pressures to meet the requirements of consum-ers who demand local presence by a retailer for product access, avoidance of shipping charges, and easy re-turns. Infra at 46-49; Ike Brannon, Michelle Hanlon, Erin Miller, Internet Sales Taxes and the Discrimina-tory Burden on Remote Retailers – an Economic Anal-ysis (March 2018) (“Brannon”), ¶ 34 (“local presence is a key ingredient for providing the competitive cus-tomer experience that consumers now demand”), http:// ssrn.com/abstract=3140948. Far from avoiding invest-ment, “nearly every successful retailer is racing to be local.” Brannon, ¶ 31. Amazon serves as the primary example, but there are many others. See, e.g., Brief of International Council of Shopping Centers, et al., at 14 (detailing online businesses establishing brick-and-mortar locations).

Notably, lower courts have not questioned the va-lidity of the Quill standard for sales taxes, or its eco-nomic analysis, but rather have declined to apply the physical presence rule to other types of taxes, precisely because such taxes impose lower compliance burdens

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on out-of-state companies. See, e.g., KFC Corp. v. Iowa Dep’t of Revenue, 792 N.W.2d 308, 325 (Iowa 2010) (“the burden of state income taxation, however, is substan-tially less” than the burden of collecting and remitting sales tax), cert. denied, 565 U.S. 817 (2011); Capital One Bank v. Comm’r of Revenue, 899 N.E.2d 76, 85 (Mass.) (“the collection of franchise and income taxes did not appear to cause similar compliance burdens” in comparison with sales tax), cert. denied, 557 U.S. 919 (2009); Tax Comm’r v. MBNA Am. Bank, N.A., 640 S.E.2d 226, 233-34 (W.Va. 2006) (the burden of sales tax collection is greater than franchise/income taxes and “demands knowledge of a multitude of administra-tive regulations”), cert. denied sub nom., FIA Card Servs., N.A. v. Tax Comm’r, 551 U.S. 1141 (2007). Un-derlying Quill’s ratio decidendi is the recognition that nationwide sales tax compliance would unduly burden remote sellers engaged in interstate commerce, and damage the national economy as a result. The physical presence standard minimizes those burdens and serves to promote a national market in which new entrants do not face unreasonable barriers to entry, small and medium-size companies can reach consum-ers throughout the country, and larger players are not subject to inconsistent and excessive regulation in hundreds or thousands of jurisdictions based merely on having customers there.

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C. Quill Has Not Been Undermined By Later Decisions.

Quill’s doctrinal underpinnings have not eroded. To begin with, Quill itself affirmed the Court’s decision in Bellas Hess, against an attack nearly identical to that leveled by the State here. Moreover, no post-Quill decision of this Court has undermined its holding, and the State points to none. See Pet. Br. at 24-27.

The Court has in recent years favorably refer-enced the physical presence standard for use taxes in rejecting a locality’s effort to use a federal statute to circumvent the Quill rule. Hemi Group, LLC v. City of New York, 559 U.S. 1, 17 (2010) (city improperly sought to impose civil liability on remote seller under RICO for uncollected use taxes that the company “had no ob-ligation to collect, remit, or pay”); id. at 18 (Ginsburg, J., concurring) (noting that the Commerce Clause pro-hibits the imposition of a use tax collection obligation on an out-of-state seller with no physical presence, cit-ing Quill and Bellas Hess). In addition, the Court has on more than one occasion cited with approval Quill’s ruling that the Commerce Clause establishes limita-tions on state taxing power that differ from the basic requirements of due process. Comptroller of the Treas-ury v. Wynne, 135 S.Ct. 1787, 1798-99 (2015); Mead- Westvaco Corp. v. Ill. Dep’t of Revenue, 553 U.S. 16, 24 (2008).

The State instead argues that Quill is inconsistent with the Court’s pre-Quill jurisprudence, in particular the Court’s seminal decision in Complete Auto Transit,

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Inc. v. Brady, 430 U.S. 274 (1977). See Pet. Br. at 22-24. To begin with, all of those arguments were addressed, and rejected, by the Court in Quill. 504 U.S. at 313-18; see also Bay Mills, 134 S.Ct. at 2037 (“all the State musters are retreads of assertions we have rejected be-fore”).

South Dakota and various amici assert that the Court should question whether nexus with the tax-payer, as opposed to the transaction, is even properly part of constitutional analysis. Pet. Br. at 22. The argu-ment is a non-starter. After recognizing, again, in Bellas Hess – based on a long line of precedents – the “sharp distinction” between retailers with a physical presence in the state and those without, the Court re-iterated it in National Geographic, three months after issuing Complete Auto. See Nat’l Geographic, 430 U.S. at 559 (discussing Bellas Hess). Four years later, the Court was unequivocal: “the interstate business must have a substantial nexus with the State before any tax may be levied on it.” Commonwealth Edison, 453 U.S. at 626 (italics in original); see also Allied-Signal, Inc. v. Dir., Div. of Taxation, 504 U.S. 768, 778 (1992) (noting that nexus with the activity is a requirement in addi-tion to nexus with “the actor the State seeks to tax”) (citing Quill). The principle was confirmed most re-cently in Direct Mkg. Ass’n v. Brohl, 135 S.Ct. 1124, 1127 (2015) (“under our negative Commerce Clause precedents, Colorado may not require retailers who lack a physical presence in the State to collect these taxes on behalf of the Department”).

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D. The Physical Presence Standard Is Not Unworkable.

The Quill rule is not difficult to apply. If a company is physically present in a state, directly or through third-parties acting on its behalf to make a market for sales in the state, then the company may be required to collect the state’s sales tax. See, supra at 11 listing cases. If neither the company nor a third party acting for it is physically present in the state, the State may not compel an out-of-state entity to collect use tax. Quill, 504 U.S. at 314-18. For the overwhelming major-ity of businesses and the vast majority of circum-stances, the rule is clear and its application straightforward.

This is not to say that the rule forecloses all litiga-tion regarding its reach. Lower courts have, for exam-ple, differed over the question of when a demonstrable, but minimal, physical presence is sufficient to create nexus. E.g., In re Appeal of Intercard, Inc., 14 P.3d 1111, 1122-23 (Kan. 2000) (sporadic employee visits over four years insufficient for nexus); In re Tax Appeal of Baker & Taylor, Inc. v. Kawafuchi, 82 P.3d 804, 813-14 (Haw. 2004) (annual three-day customer visits creates nexus). But the recognition of a de minimis standard has always been an acknowledged caveat to the “bright line,” physical presence test and does not make it “un-workable” in any sense. Quill, 504 U.S. at 315 n.8; see also Wis. Dep’t of Revenue v. William Wrigley, Jr., Co.,

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505 U.S. 214, 231 (1992) (state authority to require payment of income tax by remote sellers is subject to a de minimis standard). Businesses often must deter-mine whether or not a minimal level of activity will subject them to legal requirements or regulation, such as licensure, permitting, reporting, or disclosure re-quirements.

Although courts will inevitably be called upon to resolve such disputes when a business’ assessment of its obligations differs from the State’s, litigation con-cerning the proper interpretation and application of the physical presence standard after Quill has been relatively infrequent. A search on Westlaw among all state courts for the terms “physical presence” and “sales tax” or “use tax” in the same decision turns up fewer than 50 reported decisions from state courts con-cerning the contours of the physical presence standard for sales/use tax over the 25 years since Quill was de-cided,4 or less than two reported decisions per year across the entire nation.

4 The search returns 86 reported decisions since May 1992, but 32 of those decisions concerned state taxes other than sales and use taxes, despite including a reference to those taxes. Sev-eral more include the specified search terms without the issue of a company’s physical presence being presented for decision. In ad-dition, some cases involve more than one reported decision within the same appeal.

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E. Changed Circumstances Do Not Warrant Overturning Quill.

1. Changes In Market Conditions Do Not Alter The Existence Of Unconstitutional Burdens On Interstate Commerce.

While it is evident that the development of the In-ternet has resulted in significant changes in the retail marketplace since 1992, rapid evolution of the retail market has been accompanied by the continued, even increasing, complexity of state sales tax systems. In other words, while market conditions have changed, the constitutionally-significant conditions that formed the basis for the Court’s decisions in Bellas Hess/Quill have not changed.

The Court has already squarely rejected the argu-ment that changes in dynamic market factors provide special justification for overruling precedent where the underlying constitutional violation persists. Bay Mills, 134 S.Ct. at 2037 (rejecting increase in commercial activity as grounds for disregarding stare decisis). In-deed, nearly identical claims regarding the develop-ment of remote commerce were made by North Dakota in 1992, in seeking the abrogation of Bellas Hess. See Quill, 504 U.S. at 303-04, 313-18. By some measures, the market changes then were even more dramatic.

Retail mail order sales had grown from $2.4 billion in 1967 to over $180 billion when the Court heard ar-gument in Quill, or more than 75-fold. See Quill Corp., 470 N.W.2d at 209. In contrast, total retail sales, in-cluding business-to-business (“B2B”) sales, through all

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remote sales channels are today about four to five times as large as in 1992. See GAO Report at 9, 35. The North Dakota Supreme Court stressed the “tremen-dous social, economic, commercial, and legal innova-tions of the past quarter-century” and the creation of “revolutionary communications abilities and market-ing methods which were undreamed of,” in rejecting the application of the Bellas Hess rule to the state stat-ute in that case. Quill, 470 N.W.2d at 208 (internal quo-tations omitted). It stressed Quill’s many contacts with the state, including its distribution of 24 tons of cata-logs annually to North Dakota residents and its level of sales ($1 million/300 customers) as creating an “eco-nomic presence” that justified imposing a use tax col-lection obligation on Quill. Id. at 218-19. This Court rejected those arguments. Quill, 504 U.S. at 311-12.

2. The Amount Of Uncollected Tax Is Far

Lower Than Previously Estimated And Diminishing Rapidly.

The State uses the rapid expansion of electronic commerce to argue that the amount of uncollected tax on Internet sales is spiraling out-of-control. Pet. Br. at 35. The estimates relied upon by the states have been exaggerated for years. Even more significantly, devel-opments in the marketplace have already rendered the states’ claims about lost revenue out-of-date. Both the GAO Report, which includes a specific review of the tax collection practices for every one of the top 1,000 Inter-net retailers (GAO Report at 41-42), as well as other market data, demonstrate that the State’s estimates of

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uncollected sales tax nationwide are as much as four times too high. The perceived problem of “lost” use tax is diminishing considerably, due to market forces.

The exaggerated lost revenue claims of the State and its amici derive, ultimately, from a single source: a study done in 2009 (based on 2006 data) by professors at the University of Tennessee (“Tennessee Study”), which was updated in 2012 (using 2009 data). See Pet. Br. at 34-35. Once thought by many to be the “gold standard” for estimating uncollected use tax on remote sales, the Tennessee Study has proven no more valu- able than tin.

To begin with, the Tennessee Study, on close in-spection, has been shown to have many methodological flaws. The Tennessee Study’s lead author, Professor William Fox, recently admitted during a deposition in Newegg’s Alabama proceeding that the Tennessee Study was paid for by groups committed to overturning Quill. See Newegg v. Ala. DOR, Appellants’ Motion to Exclude Expert Report and Testimony of William F. Fox (Nov. 8, 2017), at 12 (the 2009 Tennessee Study was funded by the Governing Board of the SSUTA and the unpublished, 2012 update was paid for by the Retail Industry Leaders Association). In addition, the Ten-nessee Study was based on taxability data gathered exclusively from state revenue officials that was woe-fully incomplete. Id. at 12-13 (officials from only 29 states participated, two-thirds of whom were from SSUTA states). The figures used in the Tennessee Study for total electronic commerce also included the “vast number” of non-consumer (largely non-taxable)

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B2B transactions that make up the majority of elec-tronic commerce (91.9 percent of ecommerce in 2012 was B2B). Id. at 11. The Tennessee Study, however, “did not have any specific data on the B2B companies and their tax behavior.” Id.

Even more importantly, there have been dramatic changes in the online marketplace with regard to sales tax collection since the Tennessee Study was con-ducted. Most notably, when the study was published, Amazon.com collected sales tax in only five states (Kansas, Kentucky, New York, North Dakota, and Washington), but now collects sales tax in every state that imposes a sales tax. See supra, Isadore. The trend, moreover, is toward even greater sales tax collection by Amazon, which recently committed to commence tax collection on third-party sales on its website for states that adopt laws requiring it. Leslie A. Pappas, Amazon to Collect Tax on Third-Party Sales in Pennsylvania, BloombergBNA (Mar. 5, 2018), https://www.bna.com/ amazon-collect-tax-n57982089523/; see GAO Report at 12 (estimating the largest portion of uncollected sales tax derives from marketplace sales).

Amazon’s role in remote sales tax collection is huge, but the market forces contributing to increased sales tax collection on Internet sales are much broader. Online retail is now dominated by larger retailers that collect sales tax. Brannon, ¶ 82 (“most competitive ‘online’ retailers have trended toward an omnichannel approach consisting of both an internet presence and a local presence. . . . Previous forecasts of potential reve-nue gains from a tax on internet sales failed to predict

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this trend, and thus overstated the impact of the sales tax on remote retailers.”). The GAO found that states already receive sales/use tax on between 87 and 96 percent of sales by the top 100 online retailers. GAO Report at 41. Along with Amazon, the large, “omni-channel” retailers that collect state and local sales taxes control the great majority of the Internet marketplace. See Arthur Zaczkiewicz, Amazon, Wal-Mart, and Apple Top List of Biggest E-commerce Retailers, WWD (Apr. 7, 2017), http://wwd.com/business-news/business-features/ amazon-wal-mart-apple-biggest-e-commerce-retailers- 10862796/. Indeed, 19 of the top 20 Internet retailers already collect sales tax in most or all states (see id.), as the GAO’s research bears out. Moreover, Amazon alone accounts for 60 percent of online sales growth. Tonya Garcia, Amazon accounted for 60% of US online sales growth in 2015, MarketWatch (May 3, 2016), http://www.marketwatch.com/story/amazon-accounted- for-60-of-online-sales-growth-in-2015-2016-05-03.

In addition, there are ever-increasing market pressures from consumers for retailers to have a local presence so that customers can access their goods di-rectly, avoid shipping charges, and make returns easily. Consumers prefer to see a product in person before they buy, increasing the pressure for retailers to offer a multi-channel shopping experience. Sara Spivey, Con-sumers have spoken: 2016 is the year of “webrooming,” Marketing Land (July 29, 2016), http://marketingland. com/consumers-spoken-2016-year-webrooming-180125; Brannon, ¶ 21 (“Shoppers increasingly demand an

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‘omni-channel’ experience, enabling them to switch seamlessly across both web-based solutions and phys-ical outfits.”). These market pressures result in greater sales tax collection – whether in-store, or online – by the large multi-channel retailers that increasingly dominate the retail marketplace.

A number of the State’s amici decry the practice of “showrooming,” in which a customer goes to a local store to learn about a product, only to then purchase the product online, perhaps free of sales tax. See, e.g., RLC Br., at 16. Recent studies prove that “showroom-ing” is dwarfed by precisely the opposite phenomenon (“webrooming”), in which consumers use a website to research a product and obtain customer reviews, and then go to a store to purchase it. MEC Global, Spotlight on Webrooming (May 2016), at 4 (consumers are five times more likely to engage in webrooming), http://www. wpp.com/wpp/marketing/consumerinsights/spotlight- on-webrooming/. Forester Research estimated that by 2017, the volume of in-store retail purchases attribut-able to “webrooming” would be $1.8 trillion, nearly five times the volume of all consumer ecommerce. See Ja-net Stilson, Study Shows Prevalence ‘Webrooming,’ Ad-week (May 14, 2014) (citing Forester study), http://www. adweek.com/brand-marketing/study-shows-prevalence- consumer-webrooming-157576/.

A comprehensive study conducted in 2016 showed that convenience, not tax avoidance, was a far greater reason why consumers chose to shop online. PwC, The race for relevance, Total Retail 2016: United States (Feb. 2016) at 10. Moreover, remote sellers have always

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operated at a fundamental cost disadvantage to local businesses, because “remote sellers must charge or ab-sorb shipping and handling fees in order to deliver their products to the customer.” Brannon, ¶ 15. Con-sumers place a premium on both the avoidance of ship-ping fees and immediate access to products they want to buy, putting online-only sellers at a disadvantage compared to local big-box retailers. See Ernan Roman, Webrooming vs. Showrooming: Are You Engaging Both Types of Shoppers?, CustomerThink (Feb. 23, 2017), http://customerthink.com/webrooming-vs-showrooming- are-you-engaging-both-types-of-shoppers/. These factors demonstrate why the natural growth pattern for emerg-ing online sellers is to establish a local retail presence as their sales increase. Absolunet, Top Ten Ecommerce Trends for 2018, ¶ 1 (“Online (‘pureplay’) merchants will grow their physical footprint as consumers con-tinue to place a premium on both the versatility and depth of online shopping and the convenience of buy-ing, picking up and returning items locally.”).

The decreasing level of uncollected sales tax puts the overstated claims of the State in a new light. The GAO estimates the uncollected sales tax for 2017 at between 2 and 4 percent of general sales and gross re-ceipts tax revenues,5 but the amount is a much smaller

5 According to the Central Bureau, state sales tax revenues grew every year from 2013-2016, reaching record levels in 2017. See https://factfinder.census.gov/faces/tableservices/jsf/pages/product view.xhtml?pid=STC_2016_00A1&prodType=table; Terence Jeffrey, State and Local Income, Sales and Property Taxes All Hit Records in 2017, cnsnews.com (Mar. 22, 2018), https://www.cnsnews.com/

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portion of state and local government finances overall. Nationwide, the GAO’s estimate of $8.5 to $13.4 billion represents about 0.26% to 0.48% of state and local gov-ernment expenditures (using 2014 expenditures of $3.626 trillion). See United States Census Bureau, American Fact Finder, https://factfinder.census.gov/faces/ tableservices/jsf/pages/productview.xhtml?pid=SLF_2014_ 00A1&prodType=table. For South Dakota, whose an-nual expenditures are on the order of $7.25 billion, the portion of the GAO’s estimates attributable to the state are approximately 0.46% to 0.65% of direct ex-penditures. Id. Uncollected sales tax is a small fraction of total government finances, and declining.

F. No Other Standard Provides A More

Workable Rule.

The State and its amici argue for the replacement of the physical presence standard by one of two alter-native tests: (1) South Dakota’s $100,000 sales or 200 transactions statutory thresholds; or (2) the balancing test of Pike. Neither test is a workable alternative for preventing the burdens associated with multi-state sales tax collection.

news/article/terence-p-jeffrey/state-and-local-income-sales-and-property-taxes-hit-records-2017.

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1. “Economic Presence” Thresholds Are Fundamentally Flawed.

The State asserts that the Act’s economic thresh-olds are clear, fair, and more economically sound than the physical presence test, and thus a superior means for addressing the burdens on interstate commerce. The dramatic flaws with its approach are, however, readily apparent.

First, although the State touts the $100,000 threshold as reflective of a retailer with substantial national sales, that threshold is undercut by the alter-native threshold of 200 transactions. The average value of an Internet order is approximately $84. See Statista, https://www.statista.com/statistics/304929/us- online-shopping-order-value/. At that level, a retailer with 200 South Dakota sales would have receipts of only $16,800. Many retailers, especially small sellers, would have lower order values and lower total sales. The statute will sweep in many small businesses.

Second, the thresholds are set by the State itself. The Legislature might reduce the level of required rev-enues or transactions at any time. Another state or locality may select a lower threshold. Far from a stand-ard of heightened clarity, retailers could confront hun-dreds of different thresholds across states and “home rule” jurisdictions that could change with the whim of each new legislature, board of selectpersons, or group of county commissioners. Non-uniformity of thresholds – not a single, nationwide constitutional standard –

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would be the result. Business planning and settled ex-pectations would be disrupted.

In fact, that is precisely what state and local gov-ernment officials advocate. “Determining the level of economic activity sufficient to create an economic nexus should be left to the State legislatures, as this determination is a highly individualized and context-specific inquiry.” Brief for National Governors Association, et al., at 8 (italics added). Indeed, states have already adopted different thresholds for the im-position of tax collection obligations on remote sellers, some as low as $10,000 and 100 transactions. See Wash. Rev. Code § 82.08.053(2) ($10,000 in sales); App. C (100 transactions in Connecticut). Rather than re-ducing burdens on interstate commerce, “economic presence” standards would increase them. States and localities cannot, consistent with the dormant Com-merce Clause, be left to set the limits on their own au-thority.

Third, thresholds based on sales or transactions would create perverse economic and regulatory incen-tives. With state tax authority extended to any seller crossing a specified threshold, state and local govern-ment officials would have no reason to simplify their tax systems to lessen the burden of compliance on remote sellers. The hard work of the SSUTA would be quickly undone, as simplification and uniformity would seem a needless surrender of autonomy. More- over, with no lessening of the compliance burdens, re-mote sellers would have incentives to avoid selling to customers in the most challenging jurisdictions.

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Fourth, rather than minimizing litigation, new kinds of litigation would ensue. Retailers would be prompted to challenge the “highly individualized and context-specific” thresholds of different jurisdictions, based on their particular circumstances. The relative burdens may vary across different industries and mar-ket segments (e.g., heavy equipment sellers vs. soft-ware providers), prompting even more particularized suits. Not only the level of the thresholds, but their ap-plication to specific sellers could be subject to interpre-tation and dispute.

Fifth, the “sourcing” of retail services transactions – now a much larger portion of the economy than retail sales of goods – is a highly perplexing and contentious area of state sales tax law, for which an economic threshold is particularly ill-suited. See Brief of David Frutchman as Amicus Curiae Supporting Neither Party at 15 (“sourcing and apportioning of sales of ser-vices presents a series of complications unparalleled in sales of tangible personal property”). Whether a partic-ular service transaction, or what portion of it (in cases of multiple users in different locations), should be as-signed to a state for purposes of the sales threshold could be difficult to determine. South Dakota already taxes services; other states are sure to follow, given the massive potential for revenue from retail services. Id. at 5, 20-23. Sourcing of digital products is equally dif-ficult. In sum, economic thresholds are incompatible with the modern economy – which is increasingly dig-ital, service-oriented, and global – absent significant simplification and uniformity of state tax systems.

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2. Pike Balancing Cannot Work.

While the State does not propose that the Court adopt the balancing test set forth in Pike, numerous amici do. The Pike test is fundamentally unworkable for addressing the burdens of state sales tax collection. See Davis, 553 U.S. at 353-56 (Court is ill-suited to per-form complex balancing and economic analyses).

The suggestion by some amici that the Court should analyze the case under Pike because sales tax collection is more like a regulatory requirement than a tax payment obligation should be rejected out of hand.6 Pike demands a focus on the “local interest involved” in comparison to the burdens on interstate commerce. 397 U.S. at 142. As the Court recognized in Bellas Hess and Quill, however, the widespread adoption of sales taxes nationwide requires examination of the aggre-gate burdens on the national economy of imposing sales tax collection obligations across thousands of

6 The United States supports a “virtual presence” theory of nexus for ecommerce vendors that is advocated by neither the Pe-titioner nor any other amici, and further suggests that the Court should rely on Pike to determine the constitutionality of a state law imposing a tax collection obligation on any remote seller. U.S. Br., at 17-24. The United States misapprehends the nature of South Dakota’s sales tax, however. Compare SDCL § 10-45-2 (sales tax is imposed on the “privilege of engaging in business as a retailer”) with U.S. Br., at 17 (South Dakota does not “impose a tax liability on the retailer itself ”). Also, applying Quill to tradi-tional remote sellers, but not Internet vendors, as proposed by the Solicitor General, would violate the ITFA, which expressly forbids “discriminatory taxes on electronic commerce.”

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potential taxing jurisdictions. Such an analysis is in-compatible with Pike.

The Court has recognized Pike’s limitations for making difficult cost-benefit analyses and predicting market effects:

What is most significant about these cost- benefit questions is not even the difficulty of answering them or the inevitable uncertainty of the predictions that might be made in try-ing to come up with answers, but the unsuita-bility of the judicial process and judicial forums for making whatever predictions and reaching whatever answers are possible at all.

Davis, 553 U.S. at 355; see also id. at 360 (Scalia, J., concurring) (Pike balancing is like “deciding whether three apples are better than six tangerines”). For that reason, the Court noted, Congress is the proper forum for such analyses because it “has some hope of acquir-ing more complete information than adversary trials may produce, and an elected legislature is the prefera-ble institution for incurring the economic risks of any alteration in the way things have traditionally been done.” Id. at 356. That principle applies strongly in this case, and defeats any argument for the use of the Pike test.

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II. Congress Remains The Proper Body To Ad-dress Whether, And In What Manner, To Alter The Quill Rule.

In Quill, the Court noted that Congress has the ultimate authority for regulation of interstate com-merce, and could change the physical presence stand-ard reaffirmed by the Court if it chose. 504 U.S. at 318-19. The State bemoans congressional inaction (Pet. Br. at 54), but it mischaracterizes the efforts of Congress. For over 20 years, beginning with the adoption of the ITFA and the establishment of the ACEC, and with particular intensity over the past four sessions, Con-gress has engaged in extensive debate and careful con-sideration of the proper standards for allowing states to require remote sales tax collection. See generally Statement of Chairman Robert W. Goodlatte (Dec. 4, 2017) (“Goodlatte Statement”) (describing the “thou-sands of hours” invested in developing the Committee’s proposed “compromise solution”), https://goodlatte.house. gov/UploadedFiles/Efforts_to_Resolve_the_Remote_Sales_ Tax_Issue.pdf; Addendum to Brief of Amicus Curiae of Four United States Senators (“Senators’ Brief ”) (de-tailing bills and hearings concerning remote sales tax collection). It would be illogical to conclude that be-cause Congress has repeatedly declined to change the Quill physical presence rule, this Court should now overrule it. See Kimble, 135 S.Ct. at 2409-10 (citation omitted) (“long congressional acquiescence” further amplifies the effect of stare decisis).

Currently before Congress are three bills that ad-dress the remote sales tax collection issue: (1) Marketplace

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Fairness Act of 2017, S. 976, 115th Cong. (2017-2018), a version of which passed the Senate in 2013; (2) Re-mote Transactions Parity Act of 2017, H.R. 2193, 115th Cong. (2017-2018); and (3) No Regulation Without Representation Act, H.R. 2887, 115th Cong. (2017-2018). In addition, the House Judiciary Committee, the committee with jurisdiction concerning proposals for increased state taxing authority over interstate com-merce, has developed a set of Principles on Internet Sales Tax, https://judiciary.house.gov/press-release/house- judiciary-committee-releases-principles-on-internet-sales- tax/, and has worked in pursuit of a compromise bill that will address the competing concerns and balance the diverse interests with regard to this complex issue. See Goodlatte Statement.

In light of Congress’ role in regulating interstate commerce, “the better part of both wisdom and valor is to respect the judgment of the other branches of the Government.” Quill, 504 U.S. at 318-19. It is only Con-gress, and not the States or the courts, that has the institutional expertise to weigh the national implica-tions of expanded state taxing authority and to craft legislation that will ensure state tax obligations do not unduly burden interstate commerce. Kimble, 135 S.Ct. at 2414 (Congress has the capacity to assess the com-plexities of the issue and the ability to select the “policy fix, among many conceivable ones, that will optimally serve the public interest.”).

Other governments wrestling with the burdens of cross-border tax collection in the Internet era have recognized the need for a comprehensive, legislative

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solution to simplify compliance. The European Union has identified VAT compliance for only 28 member countries as being a major impediment to the growth of cross-border e-commerce. In response, the European Commission has proposed a major simplification of VAT administration. European Commission, Modern-ising VAT for cross-border B2C e-commerce (Dec. 1, 2016), https://ec.europa.eu/taxation_customs/sites/taxation/ files/com_2016_757_en.pdf. The plan calls for a single compliance regime for online sellers. At a time when the EU is acting to remove tax compliance burdens on cross-border Internet sellers, the Petitioner and its amici seek to impose extensive new compliance re-quirements on the most open, accessible, and dynamic sector of the U.S. economy.

Moreover, the inability of Congress, so far, to reach consensus is attributable, in no small part, to the re-fusal of the majority of sales tax states and localities to accept any simplification measures not devised by the states themselves.7 The pursuit of this litigation by

7 The Petitioner objects that Quill requires states to “beg” Congress to return their sovereign taxing powers. Pet. at 53-54. The State misconstrues the scope of its authority. “By prohibiting States from discriminating against or imposing excessive burdens on interstate commerce without congressional approval, [the Commerce Clause] strikes at one of the chief evils that led to the adoption of the Constitution, namely, state tariffs and other laws that burdened interstate commerce.” Wynne, 135 S.Ct. at 1794 (italics and brackets added). Quill no more seizes power from the State than Complete Auto does; both recognize that state tax au-thority is subject to constitutional limitations. Quill, 504 U.S. at 311, 314 (consistent with Complete Auto, Quill “furthers the ends of the dormant Commerce Clause”).

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South Dakota has effectively halted compromise nego-tiations on legislation that would promote simplifica-tion, creating an obstacle to Congress achieving a solution that would advance the interests of all sides to the debate.

III. Overruling Quill Presents The Risk Of Crip-

pling Retroactive Liability For Retailers In Over 30 States.

It is well-established that “when the Court has ap-plied a rule of law to the litigants in one case it must do so with respect to all others not barred by proce-dural requirements or res judicata.” James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 544 (1991); Har-per, 509 U.S. at 90. Indeed, the fundamental rule of “retrospective operation” has “governed ‘judicial deci-sions . . . for near a thousand years.’ ” Harper, 509 U.S. at 94 (quoting Kuhn v. Fairmont Coal Co., 215 U.S. 349, 372 (1910) (Holmes, J., dissenting)). “Unlike a legisla-ture, we do not promulgate new rules to be applied prospectively only.” James B. Beam, 501 U.S. at 547 (Blackmun, J., concurring) (internal quotation omit-ted).

A ruling abrogating Quill would subject remote sellers to potential retroactive liability in at least 30 states, and potentially hundreds of localities. It is a nearly uniform principle of sales tax law that a seller who is properly charged with the obligation to collect sales tax but fails to do so becomes liable for the uncol-lected tax. E.g., Cal. Rev. & Tax. Code § 6204; N.Y. Tax

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Law § 1133(a). Attached as Appendix A is a listing of those states whose laws would require retailers with no physical presence to collect sales taxes, but for Quill. In nearly all such states, there is no statute of limitations foreclosing an assessment against a non-filing retailer. See App. B.

South Dakota’s choice to forego its remedy for back taxes in the event that the Court were to overrule Quill, SDCL § 10-64-6, will not limit the retroactive ap-plication of such a ruling with respect to other state and local jurisdictions. The issue of remedy is deter-mined with reference to state law. James B. Beam, 501 U.S. at 535; see also Harper, 509 U.S. at 102 (a state is “free to choose which form of relief it will provide”). Other states and “home rule” localities are free to de-termine their own remedial approach if the physical presence rule is overturned. Am. Trucking Ass’ns, Inc. v. Smith, 496 U.S. 167, 201 (1990) (Scalia, J., concur-ring) (the Court’s determination of constitutionality applies to similar statutes in other States “whether oc-curring before or after our decision”). The amicus brief of the States in support of South Dakota makes no rep-resentation that the states will not pursue remote sellers for back tax liability and, instead, acknowledges that states may seek to impose their laws retroactively. States’ Br. at 19.

Indeed, although the Petitioner professes to be un-aware of it (Pet. Br. at 20), some states have openly begun to pursue retroactive tax liability in anticipation of Quill being overruled. The Connecticut Depart-ment of Revenue Services (“DRS”) has sent notices to

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retailers without a physical presence in the state as-serting liability for three years of back taxes, on the theory that the physical presence rule no longer pre-vents the state from compelling use tax collection by out-of-state sellers who have had more than 100 an-nual sales transactions with Connecticut customers. See App. C. Alabama issued an assessment against Newegg under Alabama’s “economic presence” rule as-serting six-figure liability for uncollected sales tax. See GAO Report at 23 (Alabama Department of Revenue “acknowledges that this action has the potential to al-low retroactive enforcement”). In addition, the Massa-chusetts Department of Revenue recently sent Notices of Intent to Assess to multiple Internet retailers with no physical presence, asserting tax liability starting in October 2017.

There is no meaningful limitation preventing other states from seeking retroactive liability if Quill is abrogated. Apart from raw speculation regarding potential obstacles, South Dakota points only to the theory that retroactive liability would be barred as “double taxation” since purchasers are required to self-report use tax when sales tax is not collected. Pet. Br. at 50. The argument is specious. If courts are to assume that purchasers self-report use tax, the entire basis for seeking to compel retailers to collect sales tax evapo-rates.

No precedent bars the imposition of retroactive li-ability if the Court overrules Quill. Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), cited by certain amici, now

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has at most only narrow application, and was called into question by both Harper and Reynoldsville Casket Co. v. Hyde, 514 U.S. 749, 752 (1995) (noting peti-tioner’s concession that “Harper overruled Chevron Oil” concerning selective, prospective-only adjudica-tion). Several amici, and the State, cite United States v. Carlton, 512 U.S. 26 (1994), but its analysis concern-ing retroactive tax legislation is inapposite here, and the Petitioner argues instead that Carlton establishes that taxpayers have no right to protection against ret-roactive tax laws, in any context. Pet. Br. at 51.

The ancient physician’s oath, “first, do no harm” is wise counsel here. Affirming the physical presence doc-trine protects remote sellers and the national economy from the substantial risks and uncertainties of upend-ing an established standard. The Quill rule should re-main in place, while Congress formulates legislation to balance the interests of states, remote sellers, and a healthy economy.

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CONCLUSION

The decision of the South Dakota Supreme Court should be affirmed.

Respectfully submitted,

GEORGE S. ISAACSON Counsel of Record MARTIN I. EISENSTEIN MATTHEW P. SCHAEFER BRANN & ISAACSON 184 Main Street P.O. Box 3070 Lewiston, ME 04243-3070 (207) 786-3566 [email protected] [email protected] [email protected]

March 28, 2018 Counsel for Respondents

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